Posts tagged 'financial regulation'

“Money,” we were once told, “is whatever you can use to pay your debts.”

That definition is both precise and slippery, since much of what can be used as “money” during good times is prone to losing its money-ness precisely when the need to repay debt is greatest.

Think of someone in the days before deposit insurance trying to pull cash from a failed bank to cover expenses after losing a job — or, for a more recent example, a hedge fund attempting to cover redemptions from panicked investors only to find that the prime broker responsible for holding its cash had blown up and the collateral it had provided was worthless.

The only kinds of money that reliably hold their value are the ones explicitly backed by a strong government*. Unfortunately, there isn’t nearly enough available to satiate the total demand for cash. Financial firms fill the gap by creating products that often offer many of the conveniences of money but that lack government guarantees, thereby rendering them inherently unstable and prone to crises.

Lisa joined FT Alphaville in September 2011 after a tour of duty through the guts of the financial industry, having worked as an analyst at a bank and for a financial data company. She's now the Head of New Projects for FT.com.

There’s no shortage of concerns about the impact that new regulations will have. Basel 2.5 hitting the bond market, the prohibition of ratings under Dodd-Frank hurting the beleaguered mortgage market, and the restrictions on prop trading by the Volcker Rule — which may lead to a giant sucking sound where the liquidity of several markets used to be.

Kate is FT AV’s Asia Correspondent. She joined FT Alphaville in mid-2011 after carrying out various roles in the FT’s London office since 2005: interactive editor, companies reporter, and founding editor of the FT’s Energy Source blog.

The level of suspicious trading ahead of UK mergers and acquisitions fell sharply last year to 21 per cent, the lowest level since 2003, the FT reports. Last year, timely trades – defined as abnormally large share price movements in a company in the two days before a regulatory announcement – preceded 25 of 118 UK-announced deals. That was down almost one-third from the past four years, when the level hovered around 30 per cent. The fall comes as the FSA has increased its efforts to detect, prosecute and punish such trades.

Tim Geithner, US Treasury secretary, warned overseas markets against undercutting American financial regulations, urging them to avoid following the “tragic” example that the UK set in light-touch oversight, writes the FT. In outspoken remarks that outlined the US position on a range of international regulatory issues, Mr Geithner called for a global deal on derivatives and endorsed forcing the largest banks to hold more equity capital. But such a surcharge need not be “excessive”.

The new regime of financial regulation will hit annual profits at the US’s eight biggest banks by between $19.5bn and $22bn, according to one of the first assessments of the new law. Standard & Poor’s analysts say there will be a noticeable loss of income as a result of restrictions on proprietary trading, credit card fees and derivatives activity at Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, PNC Financial, US Bancorp and Wells Fargo, the FT reports. “We think that these banks will eventually be able to offset these deficits by making smaller additions to loan-loss reserves and raising prices for some products and services,” the report said. “A return to more typical banking conditions would, in our view, mitigate most, or even all, of the financial costs of Dodd-Frank for these banks.”

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

FT Alphaville has only one thing to say about the following note from JP Morgan economist James Glassman: ouch. In the note, Glassman deplored US lawmakers’ “unnerving ignorance of fundamental principles of market economics”, among other criticisms. Read more